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Financing Agriculture Forum 2013:

Profitable Agricultural Banking

Colombo, Sri Lanka

Florence Kariuki

August 2013

Introduction

Equity Bank was founded as Equity Building Society (EBS) in October 1984 and

converted to a commercial bank which was dully registered on December 31,

2004 as Equity Bank Limited (EBL)

The Bank is licensed under the Kenya Banking act and currently has

subsidiaries in Kenya (156), Uganda (40), South Sudan(9), Rwanda(9) and

Tanzania (6)

• Equity Group Foundation-Kenya

• Equity Insurance Agency-Kenya

Vision: To be the champion of the socio-economic prosperity of the people of Africa.

Mission: Statement: We offer inclusive, customer-focused financial services that socially and economically empower our clients and other

stakeholders.

Corporate Philosophies

OUR PURPOSE

We exist to transform the lives and livelihoods of our people socially and

economically by availing them modern, inclusive financial services that

maximize their opportunities.

OUR VISION

To be the champion of the socio-economic prosperity of the people of Africa.

OUR MISSION

We offer inclusive, customer focused financial services that socially and

economically empower our clients and other stakeholders.

.



stakeholders.

Equity Bank Branch Network



stakeholders.

Why Agriculture?

Constitutes a Large “underserved” market –the Base Of the Pyramid (BOP)

To promote economic empowerment by redistribution of wealth through access to financial resources and financial inclusion

Enabling micro enterprises (farmers, processors, transporters etc) to contribute to the economy and be part of the financial system

A Social responsibility to avail financial services to the lower segment majority of whom are rural community



stakeholders.

Equity Bank Agriculture Loan

Products

Farm Input loans

Micro loans for working capital

Farm Development loans

Asset and equipment financing

Irrigation infrastructure loans



stakeholders.

Kenya’s Agro Ecological Zones

The agriculture sector dominates

Kenya’s economy

15 % of Kenya’s total land area has

sufficient fertility and rainfall to be

farmed

Principal cash crops are tea,

horticultural produce, and coffee

Main staples include Maize,

Potatoes, Wheat and Rice

Livestock predominates in the semi-

arid areas

Agriculture has been targeted under

“Vision 2030” Kenya’s current blue-

print for the future of economic

growth Vision: To be the champion of the socio-economic prosperity of the people of Africa.


stakeholders.

Introduction

“Seasonal based

lending for farmers”



stakeholders.

Market segmentation

Agriculture financing in Equity is through value chain

approach. This entails focusing on production, value

addition until the produce reaches the final consumer.

Agriculture client therefore include;

• Farmer/producers and producer groups

• Farm inputs suppliers

• BDS providers

• Produce buyers

• Processors

• Any other party involved in the chain



stakeholders.

Market segmentation

Farmers

Small scale but commercial

Large scale

Proof of at least one

successful season

Small &Medium

Agricultural Enterprises



stakeholders.

At least one year of

operation

Proper business records

Licensed /valid operating

permits

Market Segmentation-group

Lending Approach

Economies of scale

Economies of scope

Improved loan collection

Cost effective

Mitigated information

asymmetry

Reduced risks

Social collateral



stakeholders.

Lending process



stakeholders.

CREDIT

OPPORTUNITY

CREDIT CREATION

CREDIT MANAGEMENET

CREDIT COMPLETION

Credit

Opportunity

Pre application

Application

Credit Creation

Appraisal

Analysis

Credit

Management

Disbursement

Supervision

Perfection

Credit

Completion

Loan clearance

Preparation for

another credit

opportunity

Key product features –production

loans

Loan Amounts:

Collateral requirement :flexibility

Loan Term: matched to the crop/production cycle.

Charges

Credit life insurance

Loan evaluation fees

Interest rates



stakeholders.

Product Development Process

Product development may involve;

Modification of an existing product, or

Formulation of an entirely new product

At Equity Bank;

Market led, innovative and customer focused

Key questions;

What do our target customers need/want?

Is the need within our mandate?

How do we meet this need/want?

Tailor made products to suit customer needs. Vision: To be the champion of the socio-economic prosperity of the people of Africa.


stakeholders.

Product Development Process

•Market response

•Customers

•Agric staff

•Surveys

Ideas generation

•Design

•Eligibility

•Pricing

•Promotion

•Place

•People

•Process

•MIS reporting

Features development

•Pilot (if new)

•Evaluation after an agreed period of time

Product testing



stakeholders.

Loan Administration

• Ensure application is done at least one month before the onset of rains /planting season (non rain-fed farming no very sensitive to seasonality)

Application

• Ensure farm visits are conducted

• Farm input requirement summary including quantities and costs(pro-forma invoice)

• Application of CAMPARI test on the proposal/client

Appraisal

• In tranches as per the stage of crop

• Post disbursement evaluation

Disbursement & post

disbursement



stakeholders.

Loan Administration…

Application form

Client personal information

Client farming particulars

Loan particulars

Credit history

Financial details

Production data (past

&projected)

Client visits

Description of farm location

Farming particulars actual

Other income sources

Comments on farm management

Comments on pledged securities

SWOT analysis

Loan officer Recommendations

Location Maps



stakeholders.




stakeholders.

Client visits


AGL PASSBOOKS AGL PASSBOOKS



stakeholders.

Risk management

Risks

Production or yield risk:

Index based weather insurance

Diversification

Certified seeds & Fertilizers'

Extension

Market or price risk:

Warehouse receipt financing

Financial risk:

Risk sharing /credit guarantee

schemes

Personnel risk

Credit life insurance

Moral hazard

Financial literacy

Group lending-social collateral



stakeholders.

Challenges

Crop failure

Funds diversion

Last minute dash for loans

Side selling of contracted produce

Over production-Low prices

Political interference

Rogue input suppliers

Lack of extension

Lack of financial literacy



stakeholders.

Our approach in risk

management

House hold appraisal; diversification,

Group lending approach-social collateral

Loan terms and conditions are adjusted to accommodate

cyclical/irregular cash flows

Contractual arrangements to reduce price risk, enhance

production quality, and help guarantee repayment

Collaboration with stakeholders- extension,training,stockists



stakeholders.

Our approach in risk

management

Insulating agricultural finance from external interference

through relationship management.

Encouraging savings even modest amounts; agency

banking, mobile banking

Financing through value chain-strategic partnerships

Financial literacy training :debt,savings,budgeting,financial

service

Proper MIS reporting; risk classification



stakeholders.

Financing Agriculture

Innovatively

Input

Suppliers

Produce Buyers

E.g. processors Farmers

Quality Produce

Reliable Market

Affordable Savings & Credit facilities,

collection accounts

Qu

ali

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np

uts

&

tech

nic

al

su

pp

ort

Aff

ord

ab

le &

A

cce

ssib

le f

ina

ncia

l se

rvic

es

AGENTS makes

payments and

loan processing

on behalf of EBL

Post disbursement follow-ups



stakeholders.

Financial literacy



stakeholders.

Outreach



stakeholders.

Linkage to market

Agency Banking



stakeholders.

.

Email: [email protected]

Website:www.equitybank.co.ke



stakeholders.

mailto:[email protected]

http://www.equitybank.co.ke/

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